Fallout spreads from ComputerTraining collapse

More than a dozen states involved

March 24, 2010|By Gus G. Sentementes | gus.sentementes@baltsun.com

Four months after Hunt Valley-based ComputerTraining.edu abruptly closed its 25 campuses, the widespread fallout from the for-profit trade school's collapse is rippling across more than a dozen states where it operated.

Maryland and several other states are tapping insurance pools and bonds to reimburse millions of dollars to nearly 1,000 students who lost their tuition - which in turn could triggerhigher fees for other career schools that pay into state-run tuition recovery funds. And Pennsylvania is suing the defunct ComputerTraining.edu to recover more than $1 million for its students.

The collapse also left scores of employees without paychecks and has pushed the owner, David L. Rau, close to personal bankruptcy and into waging a legal battle with his bank. The school's main lender, BB&T, filed a lawsuit seeking to recoup a $1.5 million loan from the school and Rau.

"The bank says one thing, the school says another, and we're dealing with the aftermath," said L. Leslie Bennett Jr., associate director for career education at the Maryland Higher Education Commission, the agency that oversees for-profit trade schools in the state.

The fall of ComputerTraining.edu stunned industry observers and state officials, who saw the 17-year-old company as a stable institution with a good record for its students.

"Most times when you have a catastrophic closure, it isn't someone who's been running for nearly 20 years; it's usually a start-up," said David Dies, executive secretary of the Wisconsin Educational Approval Board, which is trying to help 26 students affected by the school's closing of its Milwaukee branch.

Rau said the company was a victim of the tightened credit market, as private loans for tuition were cut by more than half for students at his school. That likely prompted the bank to take action, Rau said. But he said the school would have been able to pay back BB&T if it had allowed the campuses to remain open and finish teaching students who did get loans.

Rau said he soon plans to file for bankruptcy while he tries to sell his home in St. Petersburg, Fla., for $18 million. He also blamed a BB&T loan officer who he said unnecessarily revoked a credit line used for the company's operations, which forced the school to shut down quickly.

"If I was trying to steal people's money, I wouldn't be leveraging my house and taking out mortgages," Rau said, responding to Internet rumors about his motives. "I put every dime I had into the company. Our house has always been used as collateral to fund our business."

A BB&T spokeswoman said in an e-mail late Tuesday that Rau's claims are "completely unsupported."

"BB&T will do everything it can to defend its employees," said Merrie Betbeze Tolbert, vice president of corporate communications for the bank.

Some former ComputerTraining.edu employees are not sympathetic to the company's management. Employees in Delaware, for instance, are trying to collect paychecks for their last few weeks of work and have complained to that state's labor department.

"It was just a total mess how it was handled, and he [Rau] has to take responsibility," said Chrissy Gagliardino, who worked as an assistant director of admissions at the school's Newark, Del., branch.

The imbroglio between Rau and his lender has caused headaches for officials in several states trying to help students recoup their tuition or find them other computer training programs where they can enroll.

In Maryland, the school's closing was the most serious shutdown among for-profit schools in nearly a decade and could lead to other schools contributing more money to replenish a state-run insurance pool capped at $1 million.

To cover tuition students paid before the shutdown, Bennett said, the state drew $540,000 through a letter of credit that ComputerTraining.edu had to file to do business in the state. The state recouped that money first, and plans to draw another estimated $500,000 from the fund used to reimburse students who lose money to defunct programs. ComputerTraining.edu had more than 100 students in the state.

The pool would have been entirely depleted if the state hadn't tapped the letter of credit. About 175 for-profit schools contribute to the fund.

Education officials in different states are working with students, Sallie Mae and insurance companies to refund tuition or place students in similar programs.

In Pennsylvania, the school was required to post a $100,000 surety bond for each of its four locations, but the losses to about 150 students could be between $1 million and $2 million. And in Ohio, state education officials say the school's closure will take a $500,000 bite out of a $1.7 million recovery fund as students seek reimbursement.

"Right now, we're trying to help the students," said John Ware, executive director of the Ohio State Board of Career Colleges and Schools. "Once we get that squared away, we're going to work with the [Ohio] attorney general to see who we can go after legally."